To Outsource or Not to Outsource Your Business Logistics – What should you do?

Nelson CabreraGeneral, Shipping Guide, WarehousingLeave a Comment

As a new business, you might wrestle with the decision of whether or not you should outsource your fulfillment. There are a lot of questions that you need to ask yourself and answer appropriately in order to determine whether outsourcing is a good option for you. Fulfillment for your products deserves a great deal of attention and needs to be done well but as a startup or an entrepreneur, it may behoove you to focus more on your company and allow existing distribution networks to fulfill your sales regardless of volume.

Lower Costs

Costs, of course, are the first and most important component here. When you outsource your product fulfillment you reduce the overall cost. By outsourcing, you don’t have to invest your money in any real estate such as a warehouse. Outsourcing to another fulfillment center allows you to work with companies that already have the most efficient form of labor so that reduces the unit cost for your company especially if you would otherwise struggle trying to figure out how to efficiently manage your labor. By using fulfillment centers you can enjoy better rates because of the agreements the centers already have in place with carriers and that means a lower cost for you, your customers, and higher profits overall. Most of the time these outsourced fulfillment centers can scale up or down based on the needs of your company so you won’t have to worry about things like set-up fees or monthly minimums. You can negotiate the cost and enjoy much more profit in the long-term.

Location

Location is equally important. Everyone knows it’s all about location, location, location. Fulfillment location, in particular, can reduce your transit time and if you’re able to find a location that does such you can also save on total shipping costs at the same time. You might think that it’s better to handle your own fulfillment, especially if you presently have a low volume, but then you are limited to your geographical location. If your sales volume increases and your delivery locations become more distributed, you might need a fulfillment partner that can offer a better location from which to ship your products.

Quantifiable Cost

Outsourcing adds a variable cost component to your operations. If you are selling a physical product, you have to ship it. If you are shipping, your business takes on the burden of known and predictable costs. But, as you build out your campaign financials you can integrate outsourcing if you have a tighter budget. To do this properly you would need to predict the activity and the subsequent fulfillment costs by an accurate measurement.

Those predictions should be compared to the cost of handling product fulfillment on your own. When you are considering the cost of both you have to be cognizant of factors to include in the budget such as warehouse space to store the goods, taxes on the products you are shipping, utilities for that space, and labor. Now, chances are you won’t anticipate every budgetary factor but the more you can consider and include, the more accurate your projections can be.

And of course no matter how accurate your projections you may not know how to properly predict the variability of those projections long-term. This makes such financial planning a bit risky. Using outsourcing you can base your cost structure on the fulfillment center you are using and this allows you to better predict the transaction unit cost.Expertise

Experience is incredibly important. Product fulfillment is something a bit more complicated than most people believe it to be. In order to fulfill your products accurately and effectively, you need a specialized system in place. A system that manages things like labor and expertise. Even marketers that already have personal distribution centers for their orders have to be very careful about direct-to-consumer fulfillment. Different distribution is going to bring with it dynamic changes. Carriers and freight programs change all the time. As technology involves and consumer expectations become a bit more demanding, these programs have to change with that evolution.

Using experienced fulfillment providers is imperative in order to keep pace with such changes and shift into the necessary programs when and where they are required. Fulfillment centers with years of experience and expertise have familiarity with different product lines, different industries, and various campaigns within those industries. That type of knowledge can be applied to your industry and your campaign. Concurrently, good fulfillment centers with expertise know how to manage labor. No matter your business your job should be focused on creating and marketing products, selling what it is you have to offer, and you should let someone else focus on labor-management and fulfillment.

Wrapping Up

Overall fulfillment centers can provide a range of services that, even if you can do yourself, are going to be cheaper and more effective for your company. Fulfillment, managing your orders, tackling customer service, and reverse logistics are just some of the many options that you can enjoy from a fulfillment center. So outsourcing realistically make sense both short-term and long-term.

Remember that just because you have made the decision to outsource doesn’t mean that you should pick just any company. A fulfillment center with whom you outsource your products needs to be a good fulfillment center, one that brings expertise to the table, has the right location, gives you quantifiable costs that fall within your budget, and more. Do your research and discuss different fulfillment centers with those in your business, compare different fulfillment centers you are considering, and make sure to select a strategic partner that will help your company to enjoy long-term success. With the right partner added to your team, your company will be able to properly expand when and where it’s appropriate and market your product to top-notch profitability.

Nelson Cabrera
Nelson leads global business development efforts within LILLY + Associates and has been featured as a logistics expert in numerous publications, including SupplyChainBrain, The Bulletin Panama, Logistics Management, and the Miami Herald.

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